Brazilian policy officials insisted that the country had a
bright outlook despite widespread uncertainty and mounting
risks for the global economy.
Luciano Coutinho, president of the Brazilian development
bank and one of the main policymakers in the Dilma
Rousseffs administration told Emerging Markets
that a moderation of China growth in fact creates a
benign scenario for Brazil.
One deflationary factor for the global economy, which
is particularly important to Brazil, is the deceleration of the
Chinese economy. So with the Chinese economy growing less
I dont see the Chinese economy moving back towards
10% a year, but if it stays at around 7% to 8%, commodity
prices will be lower, Coutinho said.
Nevertheless if the deceleration were greater, Brazil could
feel the impact in terms of export revenues, as commodities
still account for a large part of its foreign sales.
China, which has become its main export destination, may
also have a lesser appetite for Brazilian iron ore and soy
beans. Terms of trade would not be as favourable to
Brazil, but on the other hand, inflationary pressures would
tend to abate. It is hard to see a strongly inflationary
scenario, he said. The risks are more deflationary
than inflationary, he said
Meanwhile, the Brazilian central bank has conducted one of
the strongest series of interest cuts since August last year.
During this period, it has slashed its Selic rate by 525 basis
points to 7.25% per year.
The Brazilian government deliberately acted to put an end to
decades of extremely high interest rates in order to favour
investment in production and infrastructure.
This is a novelty in Brazil. This is the new
scenario, Coutinho said. I am very confident that
the process will move fast, because the main hindrance for a
big participation of private sources in long term finance was
the very high short term interest rates that we used to have,
because you had nice yields with no risk with high
That is heaven for savers, but it was an absolutely
abnormal situation that lasted for decades. Now it is time to
turn this page, he said.
Brazilian officials expect that the steep decline in
interest rates may now lead institutional investors, pension
funds and insurers which are now below their profitability
targets, to diversify their sources of fixed income
We have a chance to crowd in the market with new
private assets, he said. Brazil recently launched a new
concession programme in transport infrastructure that is
intended to create a big wave of investment in
There is no better alternative than sound
infrastructure projects with high rates of return as a base for
the ignition of new fixed income securities, or